Switzerland in the centre of Europe is an ideal location for establishing international business operations. The country is bordered by Germany to the north, France to the west, Austria to the east and Italy to the south.
It is a confederation, with its seat of government being in Bern. The federal government is responsible for the passing of federal laws and controlling federal taxes. Before most legislation is passed, the population will vote by way of referendum as to whether they wish the federal or cantonal government to pass a particular law. The confederation comprises 26 cantons, each of which has its own parliament and legislature. Each canton is responsible for its own administration, policing, taxation and legislation. The country is divided into three distinct regions - Swiss German (German speaking), Swiss Romande (French speaking) and Tessin (Italian speaking). The German speaking region makes up 75% of the population.
Switzerland is considered to have the finest and most efficient banking system in the world with offices of a multiplicity of international banks located in all the main business centres. Zurich in the heart of the German region, Geneva in the French region and Lugano in the Italian region.
Switzerland is not a member of the European Union, but has close links to it by bilateral agreements (I and II). which adjust diverse EU regulations binding for Switzerland. The economy is very stable and there is almost full employment. This is substantiated by the flow of workers from the neighbouring countries into Switzerland, regulated on a flexible permit system.
TAX PLANNING THROUGH SWITZERLAND
Switzerland is not traditionally regarded as a jurisdiction with an attractive taxation structure and certainly not perceived as a tax haven. There is no uniform system of taxation. The confederation and the 26 cantons all have their own legislation for the raising of taxes, as well as local community, districts, sub-districts as well church parishes levying taxes.
The three main levels of taxation - federal, cantonal and communal, each having both direct and indirect elements as shown below:
Income of legal entities and individuals;
Anticipatory withholding tax on income from moveable assets, and insurance benefits.
Stamp duties; Value added tax;
Distilled liquors, tobacco and beer.
Income and net wealth of individuals;
Net profits and capital of legal entities;
Taxes on immovable property and land including capital gains tax on land.
Death duties and gift tax (full or partial exemption in many cantons for family members) .
Transfer tax on immovable property
Income of corporations is taxed by the Swiss Federation (“Bund”) at a flat rate of 8,5% and in addition by the canton of domicile at different rates varying between 6 % in the canton of Obwalden and about 30% in the canton of Geneva.
There are three types of privileged companies which face much reduced tax rates:
Domicile companies; and
Almost all of the cantons give the same grants by charging no taxes on revenue coming from shareholdings while the Bund gives a substantial reduction on that income.
Domicile companies, which execute some management functions in Switzerland, will be taxed by the canton only on the percentage of the management work in relation to the global income.
On mixed companies cantonal tax will be only levied on income of Swiss origin while outbound revenues are tax-free. The Bund remains with the ordinary rate of 8,5% which is deductable from the income, so the effective rate is about 7,7%.
As tax burden is usually negotiable with cantonal tax authorities foreign investors will end at a rate of about more or less than 10% tax in total including capital and local taxes.
As there is strong tax competition between the cantons an investor might negotiate most favourable conditions. At the present time, the small canton of Obwalden seems to be one of the most competitive.
Individuals have the possibility to conclude an agreement with the tax authority to be taxed on the basis of a fixed level of income for a period of up to 10 years. In this case the actual income of the individual is no longer relevant.
Generally the distribution of profits deriving from a Swiss company will suffer a withholding tax of 35%. There are though some exceptions which can be used to reduce that burden to 0%. The most important one is Art.15 of the EU savings directive which reduces WHT on dividends transferred to an affiliate corporation in the EU-27 to the level of 0. Most double tax treaties offer also in case of substantial holdings reductions on dividend treaty income. A distinctive tax planning might grant all the benefits of Switzerland compared with relief of other favourite tax regimes.
There exists also the so-called “Fifty-Fifty” rule, which means that 50% of the gross earnings of a Swiss based company with mostly foreign based income might be deducted without any withholding tax, so only the dividends on the remaining lower net earnings will be levied with withholdingtax.
TYPES OF COMPANY
There are two main types of Swiss company whose characteristics are described below:
Societe Anonyme (SA)/Aktiengesellschaft (AG)– this type of company must have a minimum authorised capital of CHF. 100’000 which should be paid totally.
- Societe a Responsibilite Limitee (Sarl)/Gesellschaft mit beschranker Haftung (GmbH) – this type of company must have a minimum authorised capital of CHF. 20’000 which should also be payed in total.
A minimum of one shareholder will suffice for a SA as well as for a SARL. These details form part of the public records of the company.
A minimum of one director is required for a SA and for a SARL, while the total number of directors and managers is unlimited. One of the directors or managers has to be resident in Switzerland.
An annual tax return with accounts must be submitted to the cantonal authority. Depending on the size of the business an audit might be necessary.
The incorporation process generally takes in the region of one to two weeks, although in some cantons, an express registration to be formed in say 48 hours exists. All companies must be incorporated through a Notary and there must be a physical formation meeting which must be attended by the local Directors or Manager, Shareholders or their nominees. The capital must be paid into a blocked account in advance. Shelf companies are not available.
RESTRICTIONS ON NAME
The name is important and must be related to the purpose of the company. Names should not conflict with existing names and must end with the appropriate initials.
As a matter of local company law the company MUST maintain a registered office address within Switzerland at which registers of directors, other officers and shareholders must be retained. We would normally provide these services as well as a resident manager to attend to local administration.
Last reviewed: Wednesday, May 26, 2010
Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.